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What Would Happen If We Just Gave People Money?

Stashed in: Awesome, economics, Poverty, Nate Silver, Basic Income, Basic Income, EITC

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Super great intro to basic income, especially contrasting European and North American data.

Previous studies led to programs like EITC but no one has studied giving basic income to everyone. 

“We learned an enormous amount from those experiments,” said Karl Widerquist, a Georgetown University-Qatar professor who has studied the NIT experiments extensively. But the results “were a political failure.” The core question unanswered by either side: What is an acceptable decline in work? Unsurprisingly, work effort did decline. Some NIT recipients cut back their hours, but the declines were modest: no more than 5 to 7 percent among primary earners, and a bit more for secondary earners.

But participants quitting altogether didn’t happen, and people who did cut back their hours used their newly available time to pursue other goals, including going to school. “Some of the experimenters said that they were unable to find even a single instance of labor-market withdrawal,” wrote Widerquist in his 2005 papersummarizing the studies.

While the purpose of the NIT pilots was to observe changes in work effort, an unrelated phenomenon caught the eye of critics: divorce. Controversy erupted when data from the Seattle and Denver studies seemed to show an increase in the divorce rate among participants (those findings were later discovered to be the result of a statistical error). The press spun wild stories, and the political credibility of NIT — and of basic income, for that matter — began to unravel. Sen. Harrison Williams of New Jersey threatened to prosecute families in the experiments with welfare fraud. The experiments were allowed to run their course but the divorce controversy and concerns about work disincentives effectively killed the momentum behind the program.

As time has passed, the interpretation of these experiments has become more positive. While work declined, it fell by a modest amount. That gives hope to advocates, who cite these studies as evidence that basic income can be implemented with few economic side effects. “I don’t worry as much about work disincentives as some other people,” said Zwolinski, the libertarian advocate.

The original seed planted by Friedman’s negative income tax idea eventually blossomed into the Earned Income Tax Credit, thought by both conservativeand liberal economists to be one of the more effective anti-poverty programs in the U.S. because it manages to encourage work while avoiding the benefits cliff. The argument for a basic income as an anti-poverty program over something like the EITC is that it would be easier to administer.

What do we know about giving a guaranteed income to everyone? Not much. Negative income tax policies such as the EITC target specific groups, usually the poor. They have been tested. But basic income is often pitched as universal — everyone would get the same amount, regardless of their circumstances. And that has never been examined in a rigorous way.

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